Big tech companies have vastly outspent venture capital groups with investments in generative AI start ups this year, as established giants use their financial muscle to dominate the much-hyped sector. Microsoft, Google and Amazon last year struck a series of blockbuster deals, amounting to two-thirds of the $27bn raised by fledgling AI companies in 2023, according to new data from private market researchers PitchBook. The huge outlay, which exploded after the launch of OpenAI’s ChatGPT in November 2022, highlights how the biggest Silicon Valley groups are crowding out traditional tech investors for the biggest deals in the industry. The rise of generative AI — systems capable of producing humanlike video, text, image and audio in seconds — have also attracted top Silicon Valley investors. But VCs have been outmatched, having been forced to slow down their spending as they adjust to higher interest rates and falling valuations for their portfolio companies. “Over the past year, we’ve seen the market quickly consolidate around a handful of foundation models, with large tech players coming in and pouring billions of dollars into companies like OpenAI, Cohere, Anthropic and Mistral,” said Nina Achadjian, a partner at US venture firm Index Ventures referring to some of the top AI start ups. “For traditional VCs, you had to be in early and you had to have conviction — which meant being in the know on the latest AI research and knowing which teams were spinning out of Google DeepMind, Meta and others,” she added. A string of deals, such as Microsoft’s $10bn investment in OpenAI as well as billions of dollars raised by San Francisco-based Anthropic from both Google and Amazon, helped push overall spending on AI groups to nearly three times as much as the previous record of $11bn set two years ago.
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